1. This reference arises out of assessment proceedings under the W.T. Act in respect of assessment years 1957-58 to 1959-60. The assessee, Associated Cement Company Ltd., had made a provision for bonus payable to its employees in respect of three assessment years in question as below :
Assessment years Provision madeRs.(1) 1957-58 48,31,336(2) 1958-59 49,95,475(3) 1959-60 43,49,590
2. The relevant valuation dates in respect of the above assessment years were July 31, 1956, July 31, 1957, and July 31, 1958. The amounts set apart for payment of bonus to employees were calculated at three months' basis earning for the first year. For the second year the provision was at the rate of three months' salary to workers drawing emoluments up to Rs. 1,000 per month and 20% for the rest. In the third year the provision was sufficient to meet the payment of bonus at a flat rate of 20% to all the employee. Admittedly, an award came to be made by the industrial court in 1962 by which the workers were also entitled to a bonus of three months' salary for 1958-59 and 1959-60 but for 1957-58 an extra payment equal to 1% of salary was also allowed over and above the bonus of three months' salary.
3. In the computation of net wealth of the company, the WTO declined to exclude the provisions made for bonus on the ground that the amount due to individual employees was neither determined on the valuation date nor credited to their accounts, and, therefore, the liability could not be said to have arisen in the accounting period. The WTO took the view that the bonus charged to the profit and loss account was only a provision which could not be considered as a debt owed on the valuation dates.
4. In appeal by the company, the AAC, following the decision of the Tribunal in the case of the meaning agents of the company, Cement Agencies Ltd., directed that the amounts provided for bonus should be allowed as a deduction holding that the payment of bonus was 'an existing obligation as the demands of labour had necessarily to be met if the assessee wants to continue in business'. The department went up in appeal against this order to the Tribunal. Before the Tribunal it was contended on behalf of the department that even if the workers had legal right to claim bonus there was no liability to pay bonus in a specified sum calculated according to the formula laid down in the Payment of Bonus Act, 1965, as that Act had not come into force at the material time, and since there was no statutory obligation or liability for the payment of a specified amount of bonus and also the quantum of bonus was not determined either by amicable settlement or by an award of the Industrial Tribunal, there was no debt owed for the purpose of s. 2(m) of the W.T. Act. The Tribunal followed the decision of the Calcutta High Court in Textile Machinery Corporation Ltd. v. CWT : 67ITR122(Cal) and held that this decision was direct authority under the W.T. Act and the amounts set apart for the payment of bonus had to be excluded from the computation of net wealth. All the three appeals for the three assessment years having been dismissed at the instance of the revenue, the following question has been referred to this court under s. 27(1) of the W.T. Act :
'Whether, on the facts and in the circumstance of the case, in computing the net wealth of the company on the valuation dates, the provisions for bonus was a permissible deduction ?'
5. Mr. Joshi, appearing on behalf of the revenue, has referred us to the definition of 'net wealth' in s. 2(m) of the W.T. Act. According to the learned counsel, the amounts set apart for the payment of bonus cannot be said to be 'debt owed' by the assessee on the valuation dates and, therefore, according to the learned counsel, the several amounts referred to earlier had to be included for the purpose of computation of net wealth of the assessee. Mr. Joshi had placed reliance on the decision of the Gujarat High Court in CWT v. Sayaji Mills Ltd. : 94ITR54(Guj) and relying on that decision, it is contended that since it has been found in the instant case that the liability of the assessee to pay bonus was first adjudicated upon in 1962 in the industrial court and till that time the liability cannot be said to have been determined and any liability to pay bonus was a contingent liability and consequently it would not be a 'debt owed' : and, therefore, the Tribunal was in error in holding that the amounts set apart for the payment of bonus were liable to be deducted while computing the net wealth of the assessee. Now, there can hardly be any dispute on principles that if the amount set apart for the payment of bonus by the assessee to its employees is to be left out of consideration for the purpose of computation of its net wealth, it must be shown as 'debt owed' as required by the provisions of s. 2(m) and it will be only then that the assessee will be entitled to urge that these amounts should be left out of consideration for computation of its net wealth.
6. The concept of 'debt owed' as contemplated by the provisions of s. 2(m) of the W.T. Act has been considered in great detail by the Supreme Court in Kesoram Industries & Cotton Mills Ltd. v. CWT : 59ITR767(SC) , where the question before the Supreme Court was whether any tax payable in respect of the profits of the previous years was a debt owed by the assessee on the relevant valuation dates and was deductible in computing the net wealth of the assessee. While summarising its conclusion, the Supreme Court has observed as follows : (p. 784)
'To summarise : A debt is a present obligation to pay as ascertainable sum of money, whether the amount is payable in praesanti or futuro : debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened. A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act; if the Finance Act has not yet been passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favorable to the assessee. All the ingredients of a 'debt' are present. It is present liability of an ascertainable amount.'
7. Thus, according to the Supreme Court, the concept of debt postulates an existing liability, a liability which has accrued as distinguished from a liability which is contingent, to pay a sum of money in present or in future. Now, what Mr. Joshi contends is that the liability to pay bonus in the instant case was only a contingent liability determined upon an industrial adjudication which, according to the learned counsel, took place only in 1962 and it is in that context that reliance is heavily placed on the decision of the Gujarat High Court in the case of CWT v. Sayaji Mills Ltd. : 94ITR54(Guj) . After considering the decision of the Supreme Court, the Division Bench of the Gujarat High Court, pointing out that it was clear from the decision in Kesoram Industries' case : 59ITR767(SC) , that 'the mere fact that the sum of money is yet to be ascertained does not make it any the less a 'debt'', observed that there was 'also one other requirement which is implicit in it, though not articulated in so many words, and that is, that the liability must be to pay a liquidated amount.' Reference was made to the decision of the Calcutta High Court in Jabed Sheikh v. Taher Mallick's case : AIR1941Cal639 , referred to by the Supreme Court with approval in Kesoram Industries' case, in which the Calcutta High Court had held that a 'debt' in a legal sense means 'a liquidated money obligation' What is argued by Mr. Joshi is that a liquidated money obligation in the form of bonus payable to the employees results only from the award of the industrial court in 1962 and, therefore, during the relevant years the amounts which were set apart by the assessee for payment of bonus could not be said to be 'debt owed'.
8. Now, it is no doubt true that the Division Bench of the Gujarat High Court in Sayaji Mill's case : 94ITR54(Guj) , has pointed out that prior to the enactment of the Payment of Bonus Act, since there was no statutory liability on the part of the employer to pay bonus to his workmen, the liability to pay bonus would in that case have arisen only if the employer had an available surplus in his hands for such payment and it is only when the industrial adjudication determined that there was an available surplus and decided what part of the available surplus should be made over to the workmen as bonus that the liability to pay bonus would ripen into a debt. While there is no reason to disagree with these observations we must read them as being applicable only to a case where an industrial adjudication became necessary before a claim for bonus made by the employees was accepted by the employer. When the Division Bench of the Gujarat High Court pointed out that it is only when the industrial adjudication determined that there was available surplus and further decided that a part of the available surplus should be made over to the workmen, it was assumed in that case that there was necessity for an industrial adjudication, which arises only if the claim for bonus made by the employee is disputed by the employer. The ratio of the Gujarat High Court decision in our view will not be attracted to a case where an employer does not dispute either partially or wholly the claim for bonus which is required to be paid to the employee and having regard to the previous consistent practice spread over a large number of years the employer sets apart certain amounts computed on certain definite basis for payments as bonus to the employees. That the ratio of the Gujarat High Court decision has restricted application will be clear from the discussion made by the Division Bench page 63, where the Division Bench has pointed out :
'Where a claim for bonus is made by the workmen and it is resisted by the employer, the first question which industrial adjudication would have to consider would be whether there is available surplus in the hands of the employer, for it is only if he has available surplus in his hands that the workmen would be entitled to receive bonus'.
9. The Division Bench then further pointed out that it was only when an industrial adjudication determined that there was available surplus and decided what part of the available surplus should be made over to the workmen as bonus, that the liability to pay bonus would ripen into a debt. It was also pointed out that till the amount of bonus was settled by mutual agreement or industrial adjudication it could not be said that the employer was liable to pay bonus to the workmen and, if he was so liable, what would be the bonus payable. In the words of the Division Bench (p. 63).
'The amount of bonus would be uncertain and indefinite : it would become certain and definite only when the claim of the workmen is settled by mutual agreement or industrial adjudication.'
10. These observations leave us in no doubt that the Division Bench was specifically considering a case where the claim for bonus was disputed by the employer and the ratio of this decision would not be attracted in a case where the employer has voluntarily set apart monies for payment of bonus the liability for which is not disputed by him. The Calcutta High Court has taken the view that the quantification of the claim for bonus either amicable or through industrial adjudication by the application of what was then known as the Full Bench formula may come later but that would not make the liability any the less a liability and since it was, therefore, the bounden duty of the employer to provide for the liability, it was a debt owed by the capital to the labour and it should be deemed as such for the purpose of computation of the net wealth of the assessee. The Gujarat High Court has dissented from this view in Sayaji Mills' case : 94ITR54(Guj) . However, for the purpose of the present case it is not necessary to decide whether we should accept the principles laid down by the Calcutta High Court or we should dissent from it for reasons set out in the decision of the Gujarat High Court because, as already pointed out, in the present case, there was no dispute whatsoever between the employer and the employees, at least in so far as the claim for bonus to the extent of the amount set apart by the assessee was concerned. When the Calcutta High Court in Textile Machinery Corporation's case : 67ITR122(Cal) , held that the amounts set part for bonus was liable to be left out of consideration for the purpose of computation of net wealth, that was done on two ground. The first ground was the one to which we have referred, viz., that the liability to pay bonus is a debt and not a contingent liability because it was the bounden duty of the employer to provide for such liability as debt owed by the capital to the labour. The second ground which weighed with the Calcutta High Court and which became relevant on the facts of that case was put in the judgment as follows (p. 137) :
'There is another aspect of the matter. Here, it does not appear that there was any dispute between the assessee and the workmen over the payment of bonus up to the extent provided for by the assessee. The workmen were possibly asking for more and that is why industrial adjudication was going on. But up to a total sum of Rs. 16,93,000, spread over the years of assessment, the assessee admitted liability and was making payment of considerable sums towards bonus. This is an indication that up to that amount the payment of bonus was not disputed. If that was so, we have every reason to think that it was so, then this is an additional reason why the liability should be treated as debt owed by the assessee to the workmen.'
11. Therefore, without going into the question whether the first proposition laid down by the Calcutta High Court should be accepted by us or should be rejected as contended by Mr. Joshi, for the purpose of the present case, it is sufficient so state that the second proposition laid down by the Calcutta High Court High Court is clearly attracted to the facts of the present case. In the finding which has been recorded by the Tribunal, the Tribunal has accepted the view of the AAC and observed that 'there was nothing to show that the assessee's claim is in excess of the normal amounts that are paid to the employees year after year'. Therefore, the mere fact that some adjudication had taken place, the nature of which is not fully disclosed, will not effect the position that the amounts set apart were on the same basis on which payments were made during the previous years. If, to that extent, the employer did not dispute his liability to pay bonus, the amounts so set apart clearly represented and ascertained present liability in respect of payment of bonus. These amounts were, therefore, rightly treated as debt owed by the Tribunal.
12. In this of the matter, the question referred must be answered in the affirmative and in favour of the assessee.
13. The revenue to pay costs to the assessee.